This article is by Debra Miller, cofounder and chief executive of CureDuchenne.
How do you raise millions of dollars to help find a cure for a terminal disease that affects 300,000 boys worldwide—and parlay that into more than $100 million in pharma and biotech R&D investment? When my beautiful five-year-old son was diagnosed with Duchenne muscular dystrophy 12 years ago, I wasn’t sure, but I knew I had to do something to try to save him and the hundreds of thousands of other boys afflicted with the rare progressive muscle-wasting disease.
I founded CureDuchenne with my husband, Paul, in 2003. We wanted to create a nonprofit business model that would allow us to help accelerate drug development for the treatment of Duchenne. We turned to the very few examples of venture philanthropy in existence for inspiration. Now three of the projects CureDuchenne funded are close to becoming the first drugs to be approved for the treatment of the disorder. We have just begun a new $7 million investment to speed the work along.
Venture philanthropy is a way nonprofit organizations can become self-sustaining while raising funding for new programs or projects. The nonprofit invests in a company or project with the intent of realizing a financial gain if certain milestones are met. The financial gain can be realized in stock, royalties, a percent of sales, interest, or cash.
We took an educated risk early on and invested in a new technology called exon skipping (essentially, bypassing the damaged sections of genes that cause Duchenne) by funding a small Dutch biotechnology company called Prosensa. CureDuchenne was the first muscular dystrophy organization to fund Prosensa’s exon skipping research, and in 2004 we committed $1.3 million to further that work and received an equity stake. This initial investment came at a critical time for the company. Our new $7 million partnership with Prosensa is proof that venture philanthropy can be sustainable. Rarely in medical research are donors able to have an impact so quickly and significantly to help provide access to experimental drugs for patients who desperately need them.
With more than 10 years of experience in venture philanthropy, we can share some important lessons with other nonprofits interested in pursuing this approach:
1. Recognize that nonprofits are businesses. Big hearts and good intentions do not guarantee success in venture philanthropy. Milestones and timelines need to be well-established. Your lawyer is your friend. When there are dollars at stake, a nonprofit must protect itself from for-profit companies that might want to take advantage of the nonprofit’s overriding desire to accomplish its mission. Companies love non-dilutive financing—arrangements that don’t require them to give you shares of their stock—and they should be generous if they get your support. Don’t underestimate how important it can be for a company to get non-dilutive financing.
2. Stay true to Uncle Sam. It is perfectly legal for a nonprofit to realize a financial gain from an investment. That investment, however, must be completely compatible with the primary mission of the nonprofit. If a nonprofit realizes a financial return on an investment not in line with its mission, it is liable for taxes and can lose its nonprofit exempt status. The key test is, would you give money to this project to satisfy your mission if there were no financial return?
3. Appreciate what you bring to the relationship. A nonprofit will usually contribute more than money to a company or project. For example when CureDuchenne invests dollars in a company, we also contribute scientific expertise, patient access, and promotion. Non-monetary contributions are valuable and should be factored into the negotiated return.
4. Know your partners. CureDuchenne Ventures was created so we could pool resources and raise significant funds for research much quicker than traditional philanthropy could. It was established as a limited liability company, and CureDuchenne invests its philanthropy dollars in it alongside for-profit investors. Although there is the potential to realize sizable financial gains, profits will most likely not be as large as most venture capital and private equity investors are used to. Therefore it is very important that potential investors realize that financial gain is secondary to the success of the nonprofit’s mission.
5. Put effort into strong communications. CureDuchenne, which has successfully invested in three projects using this model, is one of the very few nonprofits to successfully engage in venture philanthropy. We still spend a lot of our time explaining the nature of venture philanthropy to donors and investors, since it’s a hybrid vehicle. Be prepared to develop very clear messages that explain your business model. Donors or investors usually have completely separate buckets of money for different objectives.
The more nonprofits ask companies for a share of profits, the easier it will be for all of us. We’ll be able to educate the donor and investor communities about the enormous social impact they can make by contributing to these projects.
We envision a day when the contributions we’ve made in the form of expertise and financing result in so much value that our share helps sustain our future good work. Like many good things, the concept of venture philanthropy emerged from a critical need to help solve a problem. It’s a nonprofit business model that works, and this mom and CEO hopes others will embrace it.
